The Economic Impact of Increased Water Demand in Australia: A Computable General Equilibrium Analysis

This paper explores the impact of increased population and water demand and reduced water supply on sectoral and regional output and employment in Australia utilising a multi-regional computable general equilibrium model. The results indicate that the increase in water demand will significantly increase the shadow price (or opportunity cost) of water use in major urban centres. For cities predicted to have high growth rates such as Sydney, Brisbane and Perth, if rising water scarcity had not been supplemented by new water supplies, and if the price of water had reflected rising scarcity, the price of water would have risen by fivefold, sevenfold and eightfold per kilolitre respectively. However, allowing rural-urban water trading and developing new water sources would reduce water scarcity and the opportunity cost of water use and the economic impacts on the Australian economy.